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Tue, Mar 03, 2009

ANN's Daily Aero-Term (03.03.09): Fuel Hedging

Aero-Terms!

Aero-Terms are designed to be a daily reminder of the terms, names, acronyms and explanations of the unique language that populates the aviation world. Aerospace, sport aviation, fixed wing, helo, you name it... it's all fair game.

Aero-Terms should serve as a quick but intriguing reminder of the terms you may use every day, or an introduction to an aspects of the Aero-World you may not yet be familiar with. ANN also encourages readers to go beyond the FMI link, and further research any intriguing terms.

Suggestions for future Aero-Terms are ALWAYS welcome, as are additions or discussion of the explanations given for each Aero-Term.

Fuel Hedging

A contractual tool used by some airlines to stabilize jet fuel costs. A fuel hedge contract commits an airline to paying a pre-determined price for future jet fuel purchases. Airlines enter into such contracts as a bet that future jet fuel prices will be higher than current prices or to reduce the turbulence of confronting future expenses of unknown size. If the price of jet fuel falls and the airline hedged for a higher price, the airline will be forced to pay an above-market rate for jet fuel.

FMI: http://articles.latimes.com/2008/may/30/business/fi-southwest30

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